AG: Peoples Gas rate hike request should be slashed

Chicago's primary natural gas company shouldn't receive a rate hike that would increase bills by 22 percent, the state attorney general told regulators Wednesday.

Attorney General Lisa Madigan said the utility is inefficiently run and that it has overestimated the cost of a massive pipe-replacement project.

Peoples Gas is seeking a rate hike of $129 million that would increase the average residential bill by $5 per month. Madigan says $74 million of that amount should be cut.

“It's disappointing that Peoples Gas rates are higher than any other natural gas provider in the Midwest, and it's shocking that they are asking for even more money from ratepayers,” Madigan said Wednesday in a statement.

In a study commissioned by Madigan's office, looking at 19 Midwestern utilities with 50,000 or more customers, Acadian Consulting Group found that Peoples Gas, which serves 831,000 customers in Chicago, was by far the most expensive utility on a per-customer basis. Peoples is a unit of Chicago-based Integrys Energy Group.

Integrys also requested a $7.1 million rate hike increase for customers of its North Shore Gas unit that would increase bills by about $2.50 per month. North Shore Gas delivers natural gas to 159,000 customers in the northern suburbs of Chicago. Madigan's office said in filings with state regulators that instead of a rate hike, the current rates should be cut by about $1 million.

The dressing down of the two gas utilities comes as Integrys is trying to justify to state regulators why it should be acquired by Wisconsin Energy Corp. for $5.7 billion in cash and stock.

Earlier this week, Madigan's office also took to task Commonwealth Edison, a unit of Chicago-based Exelon Corp., for asking its customers to foot the bill for $87.9 million in employee bonuses, a practice she said is illegal. ComEd said Wednesday that it believes the law supports employee compensation incentives.

Utility experts say the Integrys deal is unusual in that neither it nor Wisconsin Energy signaled any benefits for consumers in announcing the proposed deal. Normally companies promise improvements in customer service, safety and job retention to help win regulatory approval.

Instead, Madigan went on the attack, and analysts say her filing with the Illinois Commerce Commission will be used to extract concessions.

“That's what regulators do. They wait for a chance like this, and they'll squeeze,” said Charles Fishman, a stock analyst for Morningstar.

Fishman predicted the ICC will push for cost savings resulting from cuts in corporate administration jobs and related expenses to be funneled to ratepayers. “Regulators will try to grab as much of that as they can for the customers,” Fishman said.

Often customers end up getting a little more than half of the projected savings, typically in the form of a rate decrease or a lower rate hike, Fishman said. Neither Integrys nor Wisconsin Energy has indicated how many administrative jobs would be lost as the companies are combined.

Integrys spokeswoman Jennifer Block said Wednesday that such issues as expected cost savings and customer service will be addressed when the application to merge the utilities is filed in August.

“We continue to invest in our workforce and training to improve customer service, both in the field and via our call center and use an independent, third party to survey our customers on billing, customer service and field service satisfaction,” she said.

Gale Klappa, chairman, co-president and chief executive of Wisconsin Energy, told investors last month that combining the companies could increase earnings 5 to 7 percent per year and that 99 percent of those earnings would come from regulated businesses like Peoples Gas.

Peoples Gas is partway through a $2.5 billion upgrade to replace 2,000 miles of pipe and boost pipe pressure nearly a hundredfold in Chicago, virtually guaranteeing water won't seep into pipes, freeze and cause cracking and leaks.

The upgrade also would eliminate the need for the utility to enter homes, because meters would be outside homes and buildings.

Integrys successfully lobbied last year for legislation that would pay for the program through consumer utility bills.

The moves means consumers could see home heating bills rise an average of 4 percent per year over the next 10 years to replace those pipes.

But an analysis by Madigan's office found that those replacement efforts haven't significantly reduced corrosion-related leaks.

Madigan's office said in filings that the company is asking consumers to pay now for pipes it isn't capable of getting into the ground quickly enough based on its employment levels and its previous record of replacing pipe.

In response, Block at Peoples Gas said in a statement Wednesday evening, “There is a cost associated with investing over $300 million a year to modernize the natural gas system in Chicago in order to keep it safe and reliable.”

She also pointed out that legislation passed last summer mandates annual prudence reviews by the ICC, a rate cap to protect consumers and reports on utility performance improvements for infrastructure upgrades, the company added.

So far, Peoples has installed more than 440 miles of new pipe in 38 months.

In her filing Wednesday, Madigan's office also pointed to consumers whose service from Peoples is lacking. One example of inefficiency was Chicagoan Sarah Pickett.

Pickett received a notice in February demanding she be home for a safety inspection at her three-flat apartment building.

“Rather than inspecting and replacing all three meters (all housed in the same vestibule) in one visit, Peoples Gas scheduled four separate visits for replacements or inspection and an additional emergency visit over the course of the year,” Pickett said in testimony filed with regulators Wednesday.

Next came the threats to turn off gas to the building because the company couldn't keep its records straight, she said.

“It's unacceptable that they continued to threaten their customers with disconnections because they could not keep their records straight,” Pickett said.